Patients in the early phase of psychosis show impairments of emotional processing. These patients also demonstrate neuroanatomical and neurofunctional abnormalities which are similar to those in patients with schizophrenia in regions that are involved in emotional processing. Impaired emotional processing is reported, albeit in an attenuated form, in individuals with an Ultra High Risk (UHR) for psychosis. To date however, few studies have specifically examined the neural substrate of emotional processing in the early and prodromal phase of psychosis. The effective integration of emotional information is extremely important for interpersonal interactions and daily social functioning; but the disturbances of integration of multisensory emotional information and the associated neural processes in patients with the early phase of psychosis remain unclear. Moreover, there are no studies that have examined the integration of emotional information in the early and prodromal phase of psychosis. To do this I developed a Multisensory Emotion Recognition and Integration Task (MERIT). In an fMRI experiment and examined the neural substrate for emotion recognition and multisensory integration and the possible alteration in sixteen UHR subjects and eighteen patients with first episode of psychosis (FEP), in contrast with twenty-one healthy controls (HC). FEP patients demonstrated impairments in both unisensory and multisensory emotion recognition, and reduced activation in the brain areas associated with emotional recognition. In UHR subjects, such alterations were less pronounced than in FEP patients. Both FEP and UHR groups did not show a significant alteration in the brain areas associated with integration, but FEP patients failed to deactivate areas that may have been associated with irrelevant visual stimuli, and areas associated with the default mode brain network. A speculative model proposes that the posterior superior temporal area is important for integrating emotional information, and its activation can be modulated by modality-specific attention. These results are in part consistent with the notion that, relative to HCs, FEP patients show neurofunctional alterations in emotional processing regions that are qualitatively similar to those previously observed in schizophrenia patients. UHR subjects showed altered behavioural performance and brain activation at an intermediate level between those in HC and FEP groups. This raises the possibility of establishing neurofunctional biomarkers for emotional processing that could be used to identify UHR subjects who have a higher risk of frank psychosis, a prospect which could be investigated in future prospective and longitudinal studies.